Making the Internet sing

The evolution of the Web hosting business has been little short of meteoric, with steady demand and growing competition driving healthy market growth in the past few years.

Just as Web technologies have evolved enormously over the past decade, so, too, have Web hosting services. It seems like only yesterday that Web hosters did little more than provide data centre facilities, network connectivity and scarcely enough management services to handle the servers responsible for serving content.

Now they provide a broad range of IT operations services related to the Web, and a growing number are offering professional services. Adding spice to the mix is the growing intrusion of telecommunications operators into the industry as they look to add value to their offerings. Telkom already has a formidable infrastructure, which will be boosted even further by the pending acquisition of Business Connexion.

As is the case with so many sectors of IT, Web hosting means different things to different people. Research house Gartner considers hosting, Web hosting and application hosting to be synonymous terms. It puts Web hosting within the general IT outsourcing market, but makes a clear distinction between data centre outsourcing, application service provider (ASP) services and software as a service (SAAS).

Real competition will come from companies abroad seeking a strategic hold in southern Africa or the continent.

Hans Wencke, CEO, Hetzner

It doesn`t really matter. To many analysts and end-users, Web hosting is simply about giving space and connectivity to stuff that needs to be on the Internet. And in that sense, there is hardly anything that is not related to Web hosting.

Globally, Web hosting is on a fast growth track, according to US-based research house IDC. It predicts revenues will reach $22.4 billion by 2007, triple the $7.4 billion figure of 2000. Growth patterns are likely to follow a similar trend in SA as smaller businesses wake up to the potential of doing business online, says Internet Solutions` Sean Nourse.

Of course, the fundamental truth of Web hosting is the same as any other part of the IT organisation: customers want to buy Web hosting services in a way that makes sense for their business needs. They want flexibility in pricing and provisioning. They want the choice between bog-standard and bells and whistles. In short, they want choice.

Can the South African market give it to them? It is certainly trying, but there is work to be done, says Hans Wencke, CEO of Hetzner, one of the big three of Web hosting in this country.

Wencke says the country is caught in a catch-22 situation: the established, monopolistic players give customers a limited supplier base to choose from. Although these players provide a reasonably reliable technical product, they are often expensive and don`t focus on the quality of service provided.

On the other hand, he says, you have many start-ups which do not have a reliable, sustainable business model. This environment, he says, breeds a customer base that is conservative and sceptical. Consistent performance, a well-defined business model and adequate exposure are required to appeal to this market.

One could well debate some of Wencke`s views. But there`s no arguing with the fact that in future, more start-up businesses will mature and more niche market suppliers will emerge locally. They will begin to compete with traditional ISPs who are offering hosting and peripheral services as a secondary product.

"However, the real competition will come from companies abroad seeking a strategic foothold in southern Africa or the continent as a whole," predicts Wencke.

Business [must] consider an intelligent network service that will cater for present complex applications and future ones.

Elia Tsouros, business development executive, Verizon Business

This means the winners in the local hosting business will be those providers that offer the broadest sets of service solutions. The delivery of value-added services to help customers build their businesses is becoming the new differentiator among shared hosting providers. And the bar will continue to rise, making it increasingly difficult for new hosting entrants to offer higher-end services and applications.

Anton Gaylard, who heads the ISP division at MWeb Business, says the evolution from core hosting to value-added services came quicker than many expected. Customers are demanding far more from their providers than just hosting and site design. They need a range of business solutions: help in maintaining their Web site, driving traffic to it, managing leads, conducting e-commerce and communicating with their clients and suppliers.

"This industry is going to be dominated by those providers who have the foresight to see this is where the market is going and have the resources to make that move. If you don`t have these business tools, it`s going to be very difficult to get businesses interested in what you have to offer," says Gaylard.

Web hosting networks will have to address the critical evolving communication and IT strategies of an enterprise, says Elia Tsouros, business development executive at Verizon Business. This may include applications such as voice over Internet Protocol (VOIP) and multimedia.

"It is imperative that, when deciding on a network, businesses consider an intelligent network service that will cater for both present complex applications as well as future ones," says Tsouros.

The key differentiators in the managed hosting space for the next three or four years will remain people and service levels, says Jacques Greyling, who runs the UK-based managed hosting outfit Rackspace.

But while Web hosting companies talk about value-add and differentiating their services, there is still no aspect of Web hosting that is more fundamental than performance, and no standard that amounts to a more direct measure of quality. There is arguably no more important factor in a Web hosting customer`s experience.

The reason South African companies are turning to Web hosting in their droves is that it provides several compelling business benefits. In addition to the typical benefits of outsourcing, such as freeing the business to focus on its core competencies, smaller companies in particular are finding the lure of round-the-clock support and access to deep expertise with the supported Web technology almost irresistible.

Web hosting also usually offers cost savings, together with more-rapid technology refresh rates and the ability to eliminate most, if not all, of the capital costs associated with the outsourced systems.

There are, however, also risks associated with Web hosting. As with other forms of outsourcing, the customer loses a degree of control. Gartner suggests that the risks are greater with shared hosting than with co-location or dedicated hosting, because shared-hosting customers are sharing computational resources, as well as network bandwidth with others. This creates the possibility for impaired performance as a result of other users on the same system.

Verizon`s Tsouros believes this is easily dealt with by having good service level agreements (SLAs) that guarantee certain standards of performance. "SLAs are part of any legitimate Web hosting contract, and savvy hosting customers are checking hosts` SLAs and making sure they meet their mark," says Tsouros.

Hetzner`s Wencke believes the South African Web hosting industry is still several years behind markets like the US and the UK, where there is a drive towards increased specialisation and market segmentation. They compete on completely different price models, service requirements and market conditions, like availability of bandwidth, hardware, efficiency of supplier relationships and value-add options.

"SA is still restricted by our regulatory environment," says Wencke. "The current market is just not big enough to cater for the competition experienced in international markets. For hosting companies to operate successfully in this country, you need a combined focus on international and local hosting."

This suggests two things: one, that South African companies are increasingly looking at taking their Web hosting offshore, and two, that local hosts need to look at serving international customers if they are to be sustainable. People like MWeb`s Gaylard believe that local hosts better serve local customers, but the point is that there is a range of choices available to both hosts and customers.

You also need to keep a beady eye on the telecommunications companies. Telkom is leading a band of evolving carriers who are seeking to not only steal away a share of the traditional hosting business, but to also raise the bar by adding a new set of utility computing services to their portfolios.

The steady rise up the value chain is the reason why South African businesses of all sizes will increasingly be offered application performance management capabilities for a wide array of enterprise applications, such as customer resource management and enterprise resource planning.

Local Web hosts are looking to blur the lines between IT outsourcing and Web hosting even further by continuously tracking changes made to the customer`s hosted application environment, providing hardware "break/fix" services, updating security patches and troubleshooting operating system-related applications problems.

More sophisticated customers can also run multiple applications and operating systems on a single server as a result of server virtualisation capabilities. This increases system utilisation levels, accelerates application deployment cycles and reduces operating costs. It also enables hosting customers to make changes to production servers without scheduling costly downtime.

Nourse, who manages hosting at IS, says virtual server hosting means users who need cost-effective hosting solutions for small FTP, Web site or development environments that do not require a dedicated platform will benefit.

"Users who need either smaller server space or temporary development servers would still like a fully managed, redundant, fault-tolerant environment, connected directly to a fast network. Hosting on a virtual server gives clients connectivity and facilities normally associated with dedicated hosting, while leveraging off a syndicated platform to benefit from significant cost savings," says Nourse.

This industry is going to be dominated by providers who have the foresight to see this is where the market is going and have the resources to make that move.

Anton Gaylard, ISP division head, MWeb Business

This is great for smaller businesses, but MWeb Business` Gaylard echoes Gartner findings that many enterprise customers are not yet ready to share a physical server with other customers.

"Although customers have become increasingly comfortable about using shared resources, many are still sensitive to the idea of sharing a physical server. They do not always consider virtual machines to be dedicated resources," says Gaylard.

"The easiest utility service to offer is simply one that allows customers to provision and deprovision servers as desired, including the ability to automatically do so according to set parameters."

SA being what it is, bandwidth - and its cost - remains a perennial issue. Few factors affect the ability of Web hosting companies to deliver high-quality solutions to their customers as directly as bandwidth.

Like a highway, bandwidth operates more smoothly when more lanes are available. When too many cars clog those lanes, traffic slows. Just like highway traffic, network traffic needs as much open bandwidth as possible to reach its destination at top speed.

Bandwidth determines the volume of network traffic a host can handle at a given time, and how fast that traffic travels between the host and user. It establishes limits on what the host can realistically hope to provide. The price placed on this valuable resource is inextricably intertwined with the business of Web hosting companies.

"There is a disparity between the decreasing cost of popular Internet access products (such as ADSL and wireless services) and the proportionately lagging cost of fixed-line bandwidth on which hosting providers rely. As a result, hosting providers could be pressured by a market perception that competitive bandwidth prices are being withheld to protect their margins," says Wencke.

"In addition, improved international access is likely to make international hosting more interesting and cost-effective for some projects. This, in turn, places strain on the very expensive international lines."

The hope for the future, says Verizon`s Tsouros, lies in the next-generation network (NGN), which will reduce costs by consolidating various resources onto a single infrastructure, resulting in a more effective use of resources.

"We`re looking at a world of application hosting and managed services for a far greater range of companies than ever before," says Tsouros. "The future of Web hosting is all about creating communities and B2B portals, where you have interaction between customers and businesses. It`s a steady process of reducing the gap between service providers and customers - and in the end, that`s always a good thing."

The bottom line? For any South African company that uses the Internet in its business, Web hosting is going to play an increasingly important role in its IT organisation. For local Web hosts, it`s all about adding real business value in an industry where basic connectivity is no more than a commodity.

And as more and more services are provided online, there`s a huge opportunity for nimble Web hosts to become the de facto guardians of many companies` entire IT organisations, from servers to data centres to everyday applications. If this is convergence, bring it on.